As real estate values dip and the stock market’s direction remains uncertain, many of the ultra-wealthy are putting their money into luxury art. And increasingly, it’s not being displayed in one of their homes, but on their multi-million-dollar megayachts.
Demand for luxury art has been “insane” over the past decade as the tech, private equity, and hedge fund industries join the mix, art advisor and collector Elizabeth Margulies told Insider.
And as a recession looms, this art may do more than impress guests — it could provide some resiliency to the wealthy’s investment portfolios.
“Art lags equity markets by six to eighteen months, but is faster in its recovery,” Magnus Resch, an art market economist and a professor of art economics at Yale University, told Insider.
Resch points to the Great Recession, which saw financial markets fall in 2007 and not return to pre-crisis levels until 2013. In comparison, auction sales in the art market didn’t see a sharp decline until 2009 and fully recovered by 2011.
In today’s challenging economic environment, the art market could provide the long-term returns one-percenters are looking for. From 2000 to 2018, blue-chip art — work from the most recognized artists that tends to carry the highest price tags — outperformed the S&P 500 by 180%, according to the art database Artprice.
In the short term, Resch expects many sellers to delay selling their work until economic conditions improve, a dynamic that could reduce supply and help luxury art values “remain stable,” he said. During the 2020 downturn for instance, many art collectors seeking liquidity didn’t sell their art, but used it as collateral for loans.
For most people, however, Resch says that art is generally a “bad investment, particularly in times of crisis,” and it’s not only because it’s difficult to turn into cash in a pinch. Indexes that point to the art market’s outperformance of the S&P 500 for instance, are a “poor representation” of the global art market, he says, as they only include data from works that have “sold repeatedly.”
“Considering that more than 99% of all artworks are never re-sold, these indexes only look at the creme de la creme,” he said.
While ultra-wealthy collectors might come out of an economic downturn unscathed with respect to their art investments, he says that artists, galleries, and art fairs — “almost everyone in the art market” — could be negatively impacted. That’s partially because “one-time buyers,” which Resch says is the largest demographic, would be more hesitant to purchase luxury art during tough financial times.
The ultra-rich’s art portfolios are being taken out to sea. Demand for yachts surged when the pandemic began, as they provided one-percenters the opportunity to escape lockdowns, see the world, and social distance.
All this time spent on the water has made yachts “an extension of someone’s brand, an extension of their home and somewhere where they want to showcase their collection,” Margulies said.
“Yachts are like floating art galleries and museums, and it’s a reflection of someone’s taste, someone’s life, someone’s wealth,” she said, adding that yachts — not houses — are increasingly where the ultra-rich are entertaining guests. So it makes sense they’d want to show off their art there as well.
“They’re spending more time, sometimes, on these yachts than they are in their homes,” she adds. “And they want to be around their art.”
Margulies says these megayachts have crews and amenities that can include spas, saunas, gyms, bars, basketball courts, pickleball courts, and helicopter pads. For the ultra-wealthy looking to one up each other, it can be the art that “sets one $100 million yacht apart from another.”
She points to Leonardo Da Vinci’s Salvator Mundi, which became the most expensive painting sold in history when the Saudi crown prince Mohammed bin Salman paid $450 million for it in 2017. The painting was reportedly on display on the crown prince’s 439-foot yacht until late 2020.
Given that wealthy art collectors want to preserve their collections, one might question whether the sea is the best place to do so. But not only are many of these yachts temperature-controlled, they are generally so large, Margulies says, “that the weather doesn’t really affect the art as much as one would think.”
While some new-age wealth has gravitated to non-physical assets like NFTs, many are still drawn to the traditional art world.
“They see other people who have a lot of money and they see that these people have substantial collections,” said Margulies, who happens to be the daughter of the world-renowned art collector Martin Margulies. “So I think it’s more like being part of the cool club.”
With these new buyers in the fold, the competition for luxury art is expected to remain particularly fierce. Many renowned artists are dead, the rising stars are still building their portfolios, and buyers sometimes stray from artists that produce too much, says Margulies.
These factors have produced an art market where there is limited supply, and as a result, prices have gone through the roof.
Looking ahead, Margulies says everyone in the art world is “trying to find the next Picasso.” In the meantime, however, she expects the world’s richest to continue shelling out on art, even as economic conditions remain uncertain.
Resch agrees. “The handful of billionaires will still want to add what’s missing in their collections and fight over the few available works,” he said.
“The super wealthy are always buying art,” Margulies said. “The highest level you can really get in wealth is spending $10 million on a painting.”
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